What happened

Shares of connected fitness equipment company Peloton (NASDAQ:PTON) jumped Tuesday morning, a day after the company announced its first foray into the world of gaming. As of 11:50 a.m. EDT, Peloton shares were up 5.6%. 

So what

Yesterday, Peloton announced it is working to launch an interactive game called Lanebreak, which the company calls “an experience that sits at the intersection of gaming and fitness.” With investors valuing the company at a price-to-sales ratio of more than 10 on a trailing-12-month basis, expectations are for Peloton to continue to expand its current subscriber base. Yesterday’s announcement that it is testing an iteration of a new format combining biking and gaming is the type of new growth catalyst that investors seem to be hoping for. 

Lanebreak biking game screen. Image source: Peloton.

Now what

Lanebreak is an interactive game that simulates riding on a track with bikers facing obstacles as they attempt to maintain their cadence and resistance levels. The ride is also synchronized to the beat of music. Riders can also “switch lanes” using a resistance knob and compare results with other users.  

Peloton reported revenue growth of 141% compared to the prior-year period in its fiscal third quarter ended March 31, 2021. But the financial period also included a net loss of $8.6 million as the company continues to invest in growing the business. Peloton did report positive earnings for the prior three quarters, but the stock still trades at a forward price-to-earnings ratio of almost 140, according to data by YCharts. 

News of the company expanding its product offerings to include a gaming product has investors confident that it can grow into its valuation sooner rather than later. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.